May 1, 2022
Welcome to May—we bid a not-so-fond farewell to the first third of 2022. In my mind, everything before summer is a prelude. And while we have another 51 days of spring, the weather turns remarkably better in May. In the markets, not so much. From 1950 to 2021, May is the fifth-worst month for returns, averaging just 0.17% gain, with 43 up years and 29 down. (February, June, August, and September are worse, with September being historically the worst month of the year with an average loss of 0.69%[i])
Perhaps you have noticed, we rebalance our portfolios in February, May, August, and November. Rebalancing means we take any cash built up from dividends, contributions, or distributions and invest that cash into positions that have underperformed the rest of the portfolio. We want to bring the laggards back into the established allocation percentages.
Admittedly, I did not think of this schedule; I cherry-picked it from a third-party money manager we use. When we invest, we look for patterns or situations that might give us the slightest advantage. By buying or adding to our laggards during the worst months of the year (3 out of the 4 anyway), we institutionalize the old saw, buy low, and sell high. The strategy doesn’t always work—nothing in the markets always works, but we are looking for a better chance than not of buying at a reasonable price. Doesn’t always work, but the odds favor us.
Scrolling through Facebook the other day, someone had posted an open invitation to “Describe what you do for a living in the simplest terms.” One of my retired Trooper friends posted that he “watches palm trees sway back and forth while drinking sugary alcoholic drinks.” It made me smile.
I didn’t submit an answer since I assume these are phishing scams trying to get my personal information—I’m paranoid that way. Nevertheless, I did think about how I would answer that question. This is what I came up with: When it’s raining, I try to convince people that the sun will shine again, and when it’s sunny, I try to convince them that it will rain again.
These last four months, I’ve been preaching about how it will, believe it or not, once again, be sunny! The first four months of this market have been a non-relenting rainstorm. Not quite a hurricane, but depressingly wet and dreary. Even when we get a little peek of the sun—it’s followed by days of rain.
Here’s a general rule that we could follow—when it rains, we save for when it’s sunny. When it’s sunny, we can spend a little; go on vacation; look at new cars; new clothes; houses; etc. But when it’s rainy; stay inside; read a book; watch a good movie; and invest a little. This will give you that little advantage, or a better chance than not, of buying low and selling high. If we were to reverse the process, sell when it is raining, and buy only when it is sunny, our investments are destined to underperform.
Thanks again for reading. Get your umbrellas out, but keep your sunscreen at the ready. Please call us if you want to meet and go over your accounts, plans, thoughts about money—or even the weather. MK
[i] http://www.moneychimp.com/features/monthly_returns.htm
